Economic Partnership Commission: Comment on

UNCLAS SECTION 01 OF 03 ANKARA 007790

SIPDIS


SENSITIVE


STATE FOR E, EB/CBED, EUR/SE AND NEA/NGA
TREASURY FOR OASIA - JLEICHTER AND MMILLS
DEPT PLEASE PASS USTR FOR CNOVELLI/LERRION
FAS FOR ITP/THORBURN
USDOC FOR ITA/MAC/DDEFALCO
DEPT PASS OPIC - BRIAN TREADWELL
DEPT PASS EXIMBANK - RAY ELLIS


E.O. 12958: N/A
TAGS: ECON PREL ETRD EINV ENRG BEXP KIPR TU IZ
SUBJECT: Economic Partnership Commission: Comment on
Action Items and Next Steps



1. (U) This is an action cable. See paras 13 and 14.


Summary/Introduction
--------------



2. (SBU) Washington's draft EPC action plan can help
build a stronger bilateral economic and commercial
relationship with Turkey on economic reform, investment,
trade, energy and regional issues. Although the GOT
accepted much of this program in comments given to
EUR/SE on December 12, their proposed changes indicate
they are not ready to commit to resolving investment
disputes. We recommend rejecting the GOT's language
predicating tariff cuts for investors to resolve the
Build-Operate-Transfer (BOT) disputes in the power
sector. Embassy strongly endorses Washington's proposal
of a follow-on visit by experts on intellectual
property, agriculture, investment and WTO issues, and
urges USTR to respond in writing to the Turks' QIZ
proposal. End Summary.


Economic Reform
--------------



3. (U) The Turks agreed with our proposed action items
reinforcing the reform program. Embassy will continue
to give particular emphasis to regulatory independence
and privatization in our discussions with Turkish
officials.


Investment
--------------



4. (SBU) The GOT agreed to respond to the Advisory
Committee on International Economic Policy (ACIEP)
report, but watered down our suggested language on
resolving investment problems and offered a text which
presupposes that tariff cuts will be the answer to the
BOT dispute. While resolving these issues is one of our
top economic priorities, we do not believe the Turks
will agree to a text committing them to do so. Embassy
suggests the following language for the action item on
investment and business disputes: "Both sides recognize
that resolution of existing investment and business
disputes with U.S. companies and investors doing
business in Turkey is key to attracting greater foreign
direct investment inflows." We recommend that
Washington reject the Turkish Government's BOT language
and propose the following text: "The parties noted that
a resolution of the dispute with private power plants
should be negotiated on the basis of mutual agreements."
We will continue to raise the need for Turkey to resolve
investment disputes - indeed, the Ambassador pushed hard
on this matter with Ministers Babacan and Unakitan on
December 17 (septel) - and suggest that it be raised
with the Prime Minister during his January visit to
Washington. Investment issues should also be on the
agenda for the proposed experts visit on trade issues
(see below).



5. (U) Embassy will pass information on OPIC investment
funds to the GOT shortly, as promised at the EPC.


Trade
--------------



6. (SBU) Eximbank: Embassy hopes to use the January
2003 visit of U.S. Eximbank staff to followup on our
offer of assistance to the Turkish Eximbank on
establishing a framework agreement with the Trade Bank
of Iraq.



7. (SBU) Experts Visit: We strongly support
Washington's offer of an expert visit on intellectual
property rights (IPR),Turkey's nontariff barriers in
agriculture and WTO compliance. We do not object to the
Turkish proposal to discuss U.S. meat/poultry export
issues in this forum. The Turkish Foreign Trade
Undersecretariat is receptive to such a visit, and has
hinted that these discussions need not take place in the
Trade and Investment Framework Agreement (TIFA) context.
In view of the imminent start of the Special 301 IPR
cycle, Embassy urges USTR and USDA to visit Ankara as
early as possible in the first quarter of 2004 (see
action request below). The delegation should be
prepared to offer an inventory of Turkish practices in
IPR and agriculture which are inconsistent with its WTO
obligations, and to drive home the point that Turkey is
likely to be elevated to the Priority Watch List if
corrective action is not taken. Offering our views in
writing on Turkey's IPR regime could help spur
corrective action on problem areas, such as data
exclusivity.



8. (SBU) Qualifying Industrial Zones (QIZs): At the
EPC, the Turkish delegation provided U/S Larson and USTR
with a QIZ proposal that would provide duty free access
for limited textile/apparel exports, provided that there
is U.S. product content or ownership interest in the
exporting company. Foreign Trade representatives told
USTR and Econoff on the margins of the EPC that a QIZ
without textiles is not worth pursuing, but MFA appears
to disagree with that position. Embassy urges USTR to
respond to the Turkish proposal in writing. Washington
needs to make absolutely clear, and at the earliest
possible date, the scope of the QIZ we are willing to
pursue with Congress. Absent absolute clarity, we will
repeat the unproductive dialogue on textiles and QIZs.



9. (U) Cooperation on Textiles: The GOT proposed a new
item which would bring experts together to discuss
"cooperation possibilities" in textiles and apparel for
the post-2005 period. We raised this item in a meeting
with Foreign Trade Undersecretariat officials on
December 18. They responded that the Turkish exporters'
unions had asked for this item, and that the U.S.
textile and apparel industry was reportedly also
interested in holding these discussions. Foreign Trade
said it would consult with the exporters' union to
further develop this proposal.


Energy
--------------



10. (SBU) Ambassador Mann is visiting Ankara this week
to promote cooperation on both the Baku-Tbilisi-Ceyhan
(BTC) pipeline and the completion of the Greek
interconnector so that natural gas can transit Turkey to
other European markets.


Regional Cooperation
--------------



11. (SBU) The GOT proposed language on cooperation in
Iraq which calls on Turkey and the CPA, rather than just
Turkey, to implement the December 1 - 2 agreement on
border cooperation, and added a commitment to open a
second border gate. We recommend reverting to our
original wording, as the USG/CPA cannot promise
implementation. This is something the Turks will have
to do jointly with the Iraqis.



12. (SBU) Embassy suggests that we also considering
coordinating diplomatic approaches to the Syrian
Government to encourage greater cooperation and lower
tariffs on rail shipments to Iraq via Syria.


Action Requests
--------------



13. (U) For USTR, USDA and other agencies: Embassy
strongly recommends that Washington agree to send an
expert-level delegation to Ankara to discuss IPR,
agriculture, WTO and investment issues as soon as
possible.

14. (U) For USTR: Embassy recommends that USTR respond
in writing to Turkey's proposed QIZ legislation as soon
as possible.



15. (U) Baghdad minimize considered.
Edelman